Buy-to-fret lending

The Bank of England wants lenders to apply stricter checks on landlords, including a 5.5 pct interest rate test. But this will barely slow the rampant growth in buying homes for investment. Amid tax reform and the risk of an EU exit, any more might have provoked a housing slump.

Context News

The Bank of England on March 29 said it would recommend higher minimum standards for lending to small landlords who want to buy property to let out.

Most lenders already met the standards, but the central bank said it wanted to ensure all of them checked landlords’ incomes properly, took into account rising taxation on buy-to-let investments and ensured landlords could service a loan at an interest rate of at least 5.5 percent. About a quarter of lenders surveyed are currently using a stress interest rate of below 5.5 percent.

The Bank of England said banks planned to increase gross lending to buy-to-let landlords by 20 percent a year over the next two years, raising the risk that credit standards would loosen. The new measures would probably reduce the number of mortgage approvals by 10-20 percent in three years’ time, in addition to any extra drag caused by a range of tax increases, it said.

Separately, the central bank said that uncertainty around the UK’s future in the European Union ahead of a referendum on June 23 could push up the yields investors required for UK assets.